In Australia, these imperatives have been recognised through clearer definitions of audit responsibilities in the Corporations Act and increased regulation and supervision of company auditors via the Australian Securities and Investments Commission (ASIC).
Participants in our Series 1, 2013 Directors’ Roundtable reaffirmed the central role of the external audit.
The Roundtables concluded that the audit committee’s prime role in this area remains the establishment of good communication with the external auditors, dealing with specific audit-related issues as they arise and removing any obstacles to the smooth and effective functioning of the audit.
As many experienced directors can testify, audit committees should also appreciate that an external audit is no substitute for a strong system of internal financial and operational controls.
In this context it was argued that audit committees can be diverted from their main responsibilities by various proposals here and abroad which are argued to enhance external audit performance. Several directors noted that despite being well intentioned, some of these proposals are likely to increase the complexity and cost of the audit function without necessarily providing better audit outcomes.
For example, in May 2013 the Global Network of Director Institute issued a perspectives paper on the topic of mandatory firm rotation stating:
“…while it is important to enhance auditor independence, objectivity and professional scepticism, imposing a regulated time limit on tenure is not the best way to achieve these goals. Instead, directors are arguing strongly that regulators should focus on improving the quality of the audit, by reinforcing the board or its audit committee’s responsibility for the oversight of the audit, audit firm and quality and, where necessary, enhancing the expertise of the audit committee and potentially expanding communications between the audit firm and the audit committee.” 1
“Australia will come under increasing pressure to come into line with changes that other countries have already adopted, or are proposing to adopt.”
A quality external audit is an important element in good corporate governance, but is only one part of the overall process.